MONDAY, 30 MAY 2011 21:16 LITO U. GAGNI / SPECIAL TO THE BUSINESSMIRROR
In a speech early this month, Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. unveiled the tremendous power of the remittances of overseas Filipino workers (OFWs) to the economy once they are unlocked. These remittances, if tapped, can transform the Philippine economy, he said.
Tetangco said that in the last six years, growth in remittances averaged 14.2 percent owing to the “diversity of skills and destinations.” This huge growth level is what pushed the country’s reserves beyond $60 billion.
The BSP has taken cognizance of the big role that remittances play in the economy. Last year alone, with a record high of $18.8 billion in remittances that were coursed through the banking channel, they accounted for a tenth of the country’s gross domestic product (GDP).
It is in this light that a suggestion to let BSP contribute to a start-up sovereign wealth fund has come about. By changing the perspective on remittances from a passive player to an active one in the economy’s growth track, the Philippines stands to benefit immensely.
A senior banker said the BSP can even issue bonds to the migrants’ families to pad the contemplated sovereign wealth fund. After all, the BSP has already gone all-out to educate the OFWs on their need to save and invest their earnings.
In the last five years, according to Tetangco, the BSP has reached out to 6,000 dependents who attended 48 financial lectures all over the country and 2,000 OFWs employed in 14 countries that included South Korea, Singapore, Japan, Saudi Arabia, Bahrain, Qatar, Italy and the United Kingdom.
These financial lectures sought to empower the migrant workers “in partnership with their families to save, invest and grow their money for the long term.”
But to “maximize the development potential of remittances,” as is the objective of the BSP, what is needed is a country fund.
The economic impact of such funds has been cited earlier with Indonesia’s Pusat Investasi Pemerintah, which built a 1,800-kilometer Trans-Java toll-road project, Malaysia’s Khazana Nasional, which contributed equity to domestic firms and Vietnam’s Capital Investment Corp., which pursued the improvement of the efficiency of their local industries.
For the Philippine fund, outside of the Public-Private Partnership (PPP) projects, there are big-ticket items wherein local government units plan to spur growth through the development of tourist destinations or the building of financial hubs.
One such capital-intensive project is Manila’s plan to develop a financial hub in Port Area. Manila Mayor Alfredo Lim has sounded out the national government for the development of a 20-hectare property situated between the Manila Hotel and the Intramuros golf course.
Lim, who wants the project to be bid out as a PPP, intends to put up buildings for the business-process outsourcing industry and the financial industry. The project is seen to enhance the tourism lure of Intramuros.
The excess pool of reserves of the central bank can be best harnessed as a sovereign wealth fund. For the BSP, the shift from a traditional reserve management involves just a switchover from a passive activity to an active one. Thus, it will not be a difficult task.
President Aquino, an economics graduate from Ateneo de Manila, is aware of the impact of savings and investment vis-à-vis consumption.
Tetangco, himself an economics graduate from Ateneo, provided an interesting backdrop. “While consumption generates economic growth, it is the allocation of remittances to savings and investments that will improve the financial condition of households and that of the entire economy in the long term,” he said before the Philippine Initiative Forum on Migrants’ Remittances.
That alone supports the establishment of a sovereign wealth fund.
